US data pressures US and European stocks

Financial markets continue to respond to the deteriorating data on the US economy. The latter is creating a mixed sentiment among traders while a slowing economy could at the same time push the Federal Reserve toward a softer stance but it could also hurt company earnings and demand for commodities.

Yields on US treasury bonds have been declining from their peak last month after the fears of a banking crisis changed the narrative regarding credit conditions and the expected direction in monetary policy. In this regard, the deterioration in the jobs market and in manufacturing and services pushes in the same direction, leading to a sharp fall today.

Stocks in the US and Europe could be seeing downward pressures as traders brace for a negative impact from slowing economies and potentially a reversal in the stock market’s direction. Earnings reports could be the next factor to monitor and could cement a more pessimistic look if they come up lower than estimates.

With confidence declining and risk aversion rising, banks could come under renewed scrutiny. A sharp economic slowdown and fears of a recession could impact expectations and squeeze the banking sector as financial and economic conditions tighten further, affecting profit margins and eventually deposits.

Technology stocks could also record more losses if investors move in large numbers to safer assets. In addition, the current tensions with China could continue eroding their performance. Chip manufacturers in particular could take a hit as the US and some of its allies take steps to limit China’s access to certain technologically advanced products.

Investors might monitor future comments from members of the Federal Reserve for hints of a change in monetary policy and potentially an easing in interest rate hikes. In the meantime, markets are beginning to price in a higher probability for a pause in rate increases for the Fed’s next meeting.